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PwC Challenge Case Competition 2015

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Penn State 2nd Place Winner
-A subsidiary creation strategy aimed at funneling assets and outsourcing sales overseas to minimize tax liability

Published in: Economy & Finance
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PwC Challenge Case Competition 2015

  1. 1. Unleashing Pandemonium Unlocking Potential Creating growth through tax minimization November, 2015 Alejandro Cuevas Casey Conner David de Mattheu Chris McFalls Caleb Kwok
  2. 2. Unlocking Potential for Pandemonium… How can Pandemonium expand its operations with minimal tax liability, and what data can be accessed and analyzed to determine the optimal strategy? • Strategize & Plan • Forecast Outcomes • Analyze Effectiveness
  3. 3. Contents Key Convergence Tax liability can be minimized by • Transferring intangibles to a subsidiary • Allowing the subsidiary to conduct sales of apps under lower tax rate • Reinvest that income Connect Implement Circle back Create Forecast Epic Growth
  4. 4. Forecasting the Future Forecasting the Future Connect Implement Circle back Create Khayali 16% business tax rate 25% deduction on income from intangible property 18% business tax rate 25% professional staff must be citizens, changing laws Tuong Taxable $750 NPAT $880 Taxable $1000 NPAT $820 Hypothetical Gross Income $1,000
  5. 5. Connecting with Key-C • Pandemonium handles R&D in the U.S • Intangibles for all apps transferred to Key-C • Key-C performs sales in Tuong • Reinvest profits into data analytics Connecting with Key-C Forecast Implement Circle back Create Key-C Customers
  6. 6. Creating Key-C • Key-C as a separate business entity, Pandemonium as a global company • Creating data centers & benefiting from telemetry Forecast Implement Circle back Creating Key-C Connect 6 months Key-C Established 12 months Full infrastructure & intangibles transferred 18 months Sales & data collection 12.8 Million 47% Services
  7. 7. Implementation; Strategy Through Execution Forecast Implementing Services Circle back Create Connect Risk Assurance Pursuing growth in an emerging market through innovative products Optimizing enterprise systems for better return Organization Ensuring alignment to meet company's objectives Assisting HR organization, both management of Human Capital (HC) and HR operational excellence Information Technology Establishing and realizing the full potential of IT resources, investments, and assets Increasing digital innovation and analytics
  8. 8. Circling Back: Key-C Unlocks Potential Mission Progress Focus Pandemonium is growing, but Key-C can make it epic Collaborative creativity creates growth Focus on Pandemonium’s core The next great thing is out there waiting to happen
  9. 9. Appendix: Taxable Income Projections 2014 2015 (projected) Gross Income $12,687.00 $17,156.36 Khayali Tax Rate 18.00% 18.00% Taxable Income $12,687.00 $17,156.36 Tax Expense $2,283.66 $3,088.15 Income After Tax $10,403.34 $14,068.22 Tuong Tax Rate 16.00% 16.00% Deduction on gain on intangible property 25.00% 25.00% Tax Deduction $3,171.75 $4,289.09 Taxable Income $9,515.25 $12,867.27 Tax Expense $1,522.44 $2,058.76 Income After Tax $11,164.56 $15,097.60 ROA (2014) -3.37% IGR (2014) -3.26% ROE (2014) 35.23% SGR (2014) 35.23%
  10. 10. Appendix: Statement of Operations 12/31/2014 12/31/2013 12/31/2012 Total Revenue $19,467.00 $12,569.00 $8,954.00 Cost of Revenue $6,780.00 $4,348.00 $3,450.00 Gross Profit $12,687.00 $8,221.00 $5,504.00 Research Development $8,700.00 $5,430.00 $3,987.00 Selling General and Administrative $4,350.00 $3,001.00 $2,950.00 Acquisition & integration $150.00 $750.00- Other $175.00 $170.00 $164.00 Total Operating Expenses $13,375.00 $9,351.00 $7,101.00 Operating Loss ($688.00) ($1,130.00) ($1,597.00) Total Other Income (Expenses), Net $107.00 $10.00 ($123.00) Loss Before Interest and Taxes ($581.00) ($1,120.00) ($1,720.00) Interest Expense $1,300.00 $600.00 $1.00 Loss Before Tax ($1,881.00) ($1,720.00) ($1,721.00) Income Tax Expense $55.00 $32.00 $24.00 Net Loss ($1,936.00) ($1,752.00) ($1,745.00)
  11. 11. Appendix: Balance Sheet 12/31/2014 12/31/2013 Cash And Cash Equivalents $4,912.00 $4,496.00 Net Receivables $1,634.00 $1,305.00 Other Current Assets $2,290.00 $1,663.00 Total Current Assets $8,836.00 $7,464.00 Property Plant and Equipment $2,716.00 $3,096.00 Goodwill $5,964.00 $5,964.00 Intangible Assets, net $2,524.00 $4,450.00 Other Assets $364.00 $367.00 Total Assets$20,404.00 $21,341.00 12/31/2014 12/31/2013 Accounts Payable $2,688.00 $2,733.00 Other Current Liabilities $2,733.00 $3,224.00 Total Current Liabilities $5,421.00 $5,957.00 Other Liabilities $3,936.00 $3,357.00 Long-term Debt $13,000.00 $13,000.00 Total Liabilities $22,357.00 $22,314.00 Common Stock $8.00 $8.00 Accumulated Deficit ($4,147.00) ($2,211.00) Additional Paid in Capital $2,186.00 $1,230.00 Total Stockholder Equity (Deficit) ($1,953.00) ($973.00) Total Liabilities and Stockholder Equity (Deficit) $20,404.00 $21,341.00
  12. 12. Appendix: Statement of Cash Flows 12/31/2014 12/31/2013 12/31/2012 Net Cash Provided By (Used In) Operating Activities $659.00 ($1,452.00) ($1,749.00) Net Cash Used For Investing Activities ($188.00) ($12,905.00) ($101.00) Net Cash Provided By (Used For) Financing Activities ($55.00) $12,950.00 $205.00 Change In Cash and Cash Equivalents $416.00 ($1,407.00) ($1,645.00)
  13. 13. Appendix: GDP Growth Country 1980 1990 2000 2010 Average Annual Growth Rate, PPP 1980-1990 1990-2000 2000-2010 1980-2010 Brunei 36242 43320 48621 2 1 Cambodia 562 908 2065 5 9 Indonesia 730 1543 2429 4353 8 5 6 6 Khayali 24998 29995 35240 6 6 9 Lao PDR 342 685 1180 2449 7 6 8 7 Malaysia 2350 4839 9174 14744 7 7 5 6 Myanmar 459 1255 11 Philippines 1334 1873 2442 3920 3 3 5 4 Singapore 6758 17394 32262 56708 10 6 6 7 Thailand 1090 2910 5007 9222 10 6 6 7 Timor Leste 2330 7889 13 Tuong 2982 3785 4284 3 5 8 Vietnam 299 658 1424 3143 8 8 8 8

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